The man, holidaying from Sydney with his wife, ventured out alone in a small dinghy around 2pm. It's believed he wasn't in possession of a life-jacket.

The couple had just set off together on a trip around Australia and chose to stop at Carcoar Dam because of its picturesque surrounds.

Other tourists who were camping at the dam near the couple said yesterday the man was an insulin-dependent diabetic and was due back at camp at 4pm to take his medication.

When he hadn't returned by 7pm, his wife raised the alarm and contacted police.

Shortly after police arrived, the man's vessel was found capsized but the 54-year-old could not be located.

The search was postponed until first light yesterday. When it resumed police used a thermal imaging camera from the air while SES volunteers on boats carried sonar equipment scouring the dam for any trace of the man.

Police divers were also at the scene, while SES workers walked the shore of the dam, but to little avail.

The search continued until late yesterday, with the man's wife supported by relatives who travelled to the site after hearing news of his disappearance.

Chifley Local Area Command duty officer Inspector Colin Cracknell said Carcoar Dam remained closed to the public until further notice.